Robin Hood from the Supply-Side prospective

This is really too funny. It appears on p.39 of the 2009 ALEC-Laffer State Economic Competitiveness Index – titled “Rich States, Poor States.”

Case Study: The Supply-Side Version of Robin Hood

Don’t believe for a moment that highly progressive tax structures in California or New York help the poor, minorities, or the disenfranchised. They don’t. Just on an intuitive level, it should be self-evident that if a government taxes people who work to pay people who don’t work, there will be more people who don’t work and fewer people who do.

All of us understand the importance of helping those who have difficulty helping themselves. The question is not whether you want to help the poor. The question is, how can you make the poor better off.

If the rich are taxed and the money is given to the poor, do not be surprised if the number of poor people increases and the number of rich subsides. People respond to incentives; it is the way the world works. If you make an activity less attractive, people will do less of it. If you make an activity more attractive, people will do more of it. Taxes make an activity less attractive and subsidies make an activity more attractive.

Let’s retell the story of Robin Hood through the supply-side lens. Robin Hood and his band of merry men would start their days hiding among the trees in Sherwood Forest waiting for hapless travellers on the trans-forest throughway.

If a rich merchant came by, Robin Hood would strip him of all his belongings. Before you feel sorry for the guy, remember he is so rich that by the time he gets back to his castle there will be an abundance of jewels and wealth waiting for him. He’ll be just fine, none the worse for the wear.

If just a prosperous merchant came through the forest, Robin Hood would take almost everything the guy had, but not all. Of a normal, everyday businessman’s belongings, Robin Hood would seize just a moderate chunk. And if a poor merchant came through the forest, one who could barely make it, he would be deprived of a little token.

In the vernacular of our modern day society, Robin Hood had a progressive stealing structure. You recognize the model, don’t you? Doesn’t it sound like the California government to you or other tax systems used in this country?

At the end of the day, Robin Hood and his men would take their contraband back to Nottingham to “help” the poor. They would distribute their treasures to citizens, based on their destituteness.

Using today’s words, the more a person makes, the less Robin Hood gives him, and the less a person makes, the more he gives him. You follow the model: He stole from the rich and gave to the poor. The richer you were, the more he’d steal from you, the poorer you were the more he’d give to you. This is the story of Robin Hood.

Now, put on your supply-side economics hat and imagine for a moment you are a merchant back in the ancient days of Nottingham: How long would it take you to learn not to go through the forest?

Those merchants who couldn’t afford armed guards would have to go around the forest in order to trade with the neighboring villages. Of course the route around the forest is longer, more treacherous, and as a result, more costly.

Those merchants who could afford armed guards (and by the way, today we call these armed guards lawyers, accountants and lobbyists) would go through the forest and Robin Hood couldn’t rip them off. As a result, he had no contraband to give to the poor. All he had succeeded in doing was driving up the cost of doing business, which meant the poor had to pay higher prices and were literally worse off. By stealing from the rich and by giving to the poor, Robin Hood made the poor worse off.

And so it is in high-tax states. The poor who rely on the state for their sustenance are having their benefits cut to the bone. Because of some state’s business-unfriendly policies, unemployment rates rise. We could go on, but the point is simple enough and its significance cannot be overstated: progressive tax structures do not benefit the truly needy.

In its attempts to redistribute income, government never, ever succeeds. What it does accomplish is the destruction of the volume of income. Government cannot change the distribution of income with taxes, but it can – and does – lower the volume of income with taxes. As we look across the world at the progressive tax structure of California and other economies, it’s amazing to see how the distribution of income, if anything, is made worse.

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